Novel, yes, but in an Australian context decidedly unpersuasive ... at least for someone who's studied the Australian moral rights regime (recently highlighted here). There are times when the desire for novelty can be overdone.
Lee characterises moral rights as a feature of intellectual property -
which give artists the right to prevent purchasers of their works from altering those works, even after the purchase is complete, if the artist disapproves of the alterations. Conventional accounts of these laws’ foundations rely either on economic incentives or on creators’ “rights of personality.” Examination of the central provisions of both federal and state moral rights laws, however, reveals the implausibility of both those accounts: the central provisions that the laws actually contain are incompatible with what we would expect to find if the traditional accounts were correct, and no mere variant of the traditional accounts is likely to be plausible. Instead, these laws are best understood as resting upon a moral duty of respect for artworks’ creative excellence. Such an account both flows naturally from broader American cultural practices concerning respect for excellence and succeeds, where the other accounts failed, in providing a coherent explanation for the central provisions that we in fact observe in American moral rights laws. The Article further explains why these moral rights protections are given only to visual artists and not to creators of other works, and it shows how this analysis can inform debates about expanding creators’ legal rights of attribution. The Article also draws upon the considerable similarities between visual art and other products of human creativity to highlight the broader challenge that its analysis poses to the traditional, purely economic, understanding of the foundations of American intellectual property law more generally.The Fifty Most Important Papers inthe Economics of Regulation (ACCC/AER Working Paper No. 3, May 2011) by Darryl Biggar comments
Regulatory economists and practitioners typically seek to keep abreast of developments in their field by scanning journals’ content pages or reading summaries of recent papers. But only a few of the hundreds of papers published in any one year will have the influence or significance of the major or landmark papers from the past. This paper seeks to fill a gap by summarising the fifty most important papers in the field of regulatory economics. In each case an attempt has been made to put the paper in its historical context, to explain the key contribution of the paper, and to show the impact of the paper on subsequent practical and theoretical developments.
Of course, the selection of the fifty most important papers involves a degree of subjectivity and will inevitably be somewhat idiosyncratic. To help the reader understand the choices made, I make the following comments.
- First, I have taken ‘most important’ to mean the most valuable or most useful papers to the staff of a regulatory authority. This does not necessarily reflect the importance or significance of these papers within the academic economics profession, or the number of citations to the paper in academic journals. A paper which introduces a new theoretical mathematical technique may be important to the academic literature and widely cited, but may not be directly relevant to the day-to-day activities of a regulatory authority. Some of the papers included in this list are themselves survey papers, which are not likely to attract a large number of citations, but remain valuable to regulatory practitioners. I have deliberately excluded papers which are highly technical and which would not normally be considered accessible to a staff member of a regulatory authority.
- Second, an attempt has been made to cover most of the fields relevant to a regulatory authority. In practice, the economics literature has followed trends in thinking, fashions, and what were, at the time, promising lines of enquiry. The economics literature does not focus equal attention on all of the issues that confront a regulator in practice. In the case of some topic areas there are a large number of relevant economics papers – in other areas, very few. Some topics of interest to a regulatory authority (such as mechanisms for minimising the impact of the five-year regulatory cycle on the cycle of incentives on the regulated firm), have simply no relevant academic papers at all. To an extent, the number of articles under each heading here is more a reflection of the number of relevant articles in the economics literature than a reflection of the importance of the topic to a regulatory authority.
- Third, to an extent the selection and presentation of the articles set out here reflects my view that public utility regulation is best viewed through the lens of transactions cost economics. Specifically, public utility regulation is best viewed as a form of long-term contract. That contract is designed to solve the hold-up problem arising from the need to make material sunk, relationship-specific investments, particularly by the customers. As the papers in this survey show, this perspective was first proposed in the 1970s. Although there are a number of papers that recognise the importance of sunk investments by service providers, very few papers have explored the consequences of sunk investments by customers. Nevertheless, in my view, this perspective offers strong promise as a coherent approach to understanding the foundations of public utility regulation. Inevitably, some potential topics have not been covered here. For example, I have deliberately excluded papers on universal service obligations or on the liberalisation and market structure decision. I have also excluded papers which address issues unique to a particular industry.
The papers here are primarily drawn from economic journals. However I have also included articles published in the Handbook of Economics series and at least one unpublished survey article. Many of the survey articles from the Handbook of Economics are valuable, integrated presentations which summarise the state of knowledge of an entire topic area at a particular point in time. In some instances the most valuable reference for a particular topic will be an economics textbook, but these were excluded from this survey.
For each paper included in the top fifty, there are typically two or three related papers which might have made it into the top fifty and are at least worthy of mention. The full citations to these related papers are included in the references at the end. The fifty selected papers have been grouped into fifteen topic areas. Each of these topic areas is discussed in turn below.Biggar's topics are
I. Debates over the Foundations of Economic Regulation
II. Pricing I: The Neoclassical Approach
III. Pricing II: Cost Allocation
IV. Pricing III: Rate Base and Depreciation
V. Averch–Johnson and Incentives under Rate-of-Return Regulation
VI. The Rise of ‘Incentive Regulation’
VII. Pricing IV: The Weighted Average Price Cap
VIII. The Rise of ‘The New Economics of Regulation’
IX. Yardstick Regulation and Benchmarking
X. One-Way Access Pricing
XI. The Regulation of Quality
XII. Vertical Integration and Non-Price Discrimination
XIII. Risk, Uncertainty and Cost of Capital Issues
XIV. Two-Way Interconnection
XV. The Design of Regulatory InstitutionsBiggar concludes
This paper is primarily a literature survey. However, I have in many respects been critical of much of the direction of this literature. In any public policy problem it is essential to first understand the problem we are trying to solve. In my view, a case can be made that neoclassical economists have misunderstood the fundamental economic rationale for public utility regulation. Regulators do not, in practice, behave as though their primary concern is the minimisation of deadweight loss. Instead, according to the transactionscost perspective, public utility regulation is best thought of as a mechanism for protecting the sunk investments of both the monopoly service provider and its customers. In my view, the economics literature could have been more valuable to regulatory practitioners if economists had taken seriously the approach first put forward by Goldberg and Williamson in 1976. It is not that these ideas were simply ignored. After all, the new field of transactions cost economics emerged from these papers, for which Williamson won the Nobel Prize in 2009. However, where these ideas have been applied in public utility regulation, they have focused only on the need to protect the sunk investment by the regulated firm. The need for sunk investment by customers of the service provider has been largely ignored.
In my view, in the field of public utility regulation much remains to be done. For example, many of the conventional practices of regulators are still poorly understood by economists. For example, although the transactions-cost approach to utility regulation provides some suggestion as to why regulators focus on ensuring stable prices, there is not yet a theoretical foundation for this practice. What degree of stability can be promised in the face of uncertainty? What promises can or should the service provider make to its customers regarding price stability? What role do cost allocation mechanisms play in ensuring price stability? Similar issues arise with common pricing practices such as the control of price discrimination. Precisely what forms of discrimination should be allowed and when?
Furthermore, there is a need for a better understanding of the proper role for regulators themselves. What does it mean for a regulator to play the role of a dispute resolution mechanism in a long term contract? What is the proper scope and grounds for appeal from regulatory decisions? What functions should the regulator carry out? When should a regulator keep and when should it break its promises? What is the best division between ex ante regulatory rules and ex post regulatory discretion? In addition, there is a need for a better understanding of the potential for restrictions on the regulatory process to limit the time and resources consumed in resolving regulatory disputes.
There is also a need for a better understanding of the role of customers in the regulatory process. How should customers’ interests be aggregated and represented in regulatory processes? Most of the states in the US have established institutions to represent customer interests in utility rate-making processes. These institutions are hardly ever mentioned in the economics literature. What exactly is the theoretical role for such institutions?
There is also significant scope for further interaction between regulatory policy-makers and other designers of long-term contracts. For example, what can regulators learn from government agencies involved in the design of long-term contracts, such as procurement agencies, or agencies involved in designing long-term public-private partnerships? There have been important economic studies of long-term private contracts which have yielded a few insights for utility regulation, but there remains much to be understood about the kinds of provisions and clauses that service providers and their customers will include in private long-term contracts. It seems to me that regulatory economists have only begun to tap the resources available around them. ...
This paper is, at one level, merely a literature survey. On the other hand, it is not an attempt to survey each and every paper in the field of regulatory economics. Rather, it is an attempt to identify and summarise the fifty most important papers in the field of public utility regulation – putting each paper into its historical context and explaining the resulting developments in theory and practice. The fifty papers were selected from the perspective of a regulatory practitioner. It is the answer to the question: If I only have time to read fifty papers in the economics of regulation, what fifty papers should I choose?
Of course, the selection of the fifty most important papers is inherently somewhat subjective. I have focused on papers which are important either because they stimulated entirely new lines of enquiry, or because they had a major impact on regulatory practice, or because they summarise the state of the art. I have focused on papers which would be accessible to a regulatory practitioner. In addition the selection of papers reflects my conviction of the importance of the transactions cost approach to public utility regulation, which has yet to be fully explored.
As this survey has shown, over the past few decades considerable advances have been made in developing better regulatory policies. In particular, the past few decades have seen considerable progress in understanding one-way and two-way access pricing, the foundations of the building block model, and the key role played by information. Important advances have also been made in understanding regulatory incentives and in the application of finance theory to the regulatory task.
Interestingly, many of the key advances in regulatory thinking were in response to, rather than leading, regulatory reforms. In many instances key theoretical papers emerged after, rather than before, key reforms. Where economic theory has been pursued independently (such as the theoretical work on incentive regulation) its application to regulatory practice has been limited. The impact of the neoclassical approach to public utility pricing remains somewhat limited.
In a sense, the study of public utility regulation is at a crossroads. Many respected economists (such as Baumol) have recognised that their advice has not always met the needs of policy-makers. In my view, as I have emphasised throughout this review, this is due to the neglect by most economists of the importance of sunk investments by customers and the consequent need for mechanisms to protect and promote that investment. Taking Baumol out of context, if economists do not take these sunk investments seriously, ‘those who seek the help of microeconomists are likely to continue to feel that they have asked for bread and we have given them only stone
